With so much economic chaos all around us, there’s going to inevitably be talks about how housing is impacted.
Still shell-shocked by the housing crisis of the 2000s, many people believe that there will be a repeat of this crisis in 2023.
While learning history is great, we should also realize that history doesn’t always repeat itself. It may rhyme but there are sometimes circumstances in play that make certain epochs unique.
Housing generally obeys this trend. The conditions of the present housing market differ significantly from those in the early 2000s.
One of the most notable differences is most apparent in lending standards.
We shouldn’t forget that legislation such as the Community Reinvestment Act compelled banks to lend money to individuals who generally would not have qualified to receive loans under normal market circumstances. These “subprime” borrowers were significant drivers in accelerating the 2000s housing crisis.
One thing to keep in mind here. The US is likely not going to experience a housing collapse similar to the one that took place in the 2000s.
Simply put, lending standards are much stricter than in previous decades.
On top of that, entry level housing units are still under-supplied for the most part. Inventory is slowly climbing upwards but there’s still a ways to go before it reaches normal levels.
Due to the supply constraints in housing, income property investors will be ideally positioned to increase their cash flows.
Housing is not disappearing off the face of the earth anytime soon. People are going to always need to have a roof over their head.
Make no mistake about it.
Our very own Jason Hartman had Mike Simonsen of Altos Research to discuss the state of housing inventory nationwide.
P.S. One of the biggest myths in housing is that the US has one housing market.
This is not the case. There are multiple kinds of markets.
Some markets are linear, meaning that they have more consistent cash flows and less price volatility. Some of these markets are best exemplified by cities such as Jackson, Mississippi; Mobile, Alabama; and Indianapolis, Indiana.
Others are more cyclical, where there are large ups and downs in terms of housing prices. Think of Los Angeles, New York City, and San Francisco as examples of cyclical markets.
The distinction between linear and cyclical markets is discussed at length in Empowered Investor Pro.
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